When all is said and done, be sure to get a complete copy of the tax return, signed by you and the tax professional. You will often need to file that tax return for loans or business transactions.
3. PLAN AHEAD BY GOING BACK
Once you’ve chosen a tax professional, be ready to show them your tax returns for the past year, as well as your receipts.
The earlier you talk to a tax professional about expenses and bills, the better off you’ll be at tax planning in the final quarter of the year. If you go to the office in February and just drop the bills, nothing can be done but submit that statement.
4. UNDERSTAND WHO BUJKS IS UNDER IRS RULES
The USDA can call anyone with $1,000 in farm sales a “farmer,” but the IRS is a little stricter on some rules.
To avoid sending estimated quarterly tax payments, two-thirds of a person’s gross income must come from the farm, Holcomb noted. If so, then the manufacturer gains some flexibility when it comes to assessed taxes and filing a full return.
If a farmer does not make the estimated payments, then the compensation is that the farmer’s tax return is due on March 1. If a farmer goes ahead and makes an assessed payment on January 15th, then this extends the tax return deadline to April 15th.
“There’s some flexibility that comes into play with this, but this is a big thing where producers don’t have to make estimated tax payments, they just have to file the return by March 1,” Holcomb said.
Producers not subject to that “two-thirds” rule also need to pay extra attention this year to make sure they avoid underpaying those estimated payments, noted Bob Rhea, CEO at Farm Business Farm Management based in Urbana, Illinois, and an instructor at the University of Illinois School of Taxation. With higher interest rates, the IRS will expect to have higher interest rates on their penalty fees at the end of 2022 as well.
Also, keep in mind that sales of farm machinery are not considered farm income for this definition of an estimated tax payment.
5. AGRICULTURE OR PROCESSING?
Schedule F, the form for farmers, includes the sale of raw goods. For many smaller operations, there is also some processing of those products and it is likely to change the income to a Schedule C business income.
That comes out big now with the expansion of vineyards and wineries, Holcomb said. Only the sale of grapes from a vine is agricultural production and is considered farm income. The processing of this grape in the summer becomes a non-farm income.
CERTAIN OTHER REVENUE CONSIDERATIONS
You may want to ask your tax professional how proficient they are in some of the following matters:
— Average income
Having a really good income year? Farmers and fishermen have the option of income averaging under Schedule J. Income averaging allows income from 2022 to defer some taxable income to the last three years. Farmers can look back at the previous three years and see how much income they can push back into 2019-2021 under a lower bracket. This will help the farmers who see that their F Plan this year has high income.
— Installment sales
A farmer may also deliver grain in October but collect the check the following January to report the proceeds in the following year, which is known as an installment sale.
On the other hand, a farmer also has the option to choose from an installment method to move the income from the beginning of 2023 back to 2022 if this is beneficial.
— Government Payments
Farm program payments, crop insurance indemnities and Conservation Reserve Program (CRP) payments involve different rules. There is case law on who must pay self-employment taxes on CRP payments.
“This is one that you probably have to sit down with a tax professional to nail down,” Holcomb said.
— Garbage discounts
It will likely never be a more important topic than in 2022. Fertilizer spending is a choice that farmers make every year with payback, and most farmers use that option, although producers also have the option of amortizing over many years. .
“Most farmers I’ve ever come across, we spend garbage on our tax returns,” Holcomb said.
For a deeper dive into farm tax issues, check out DTN’s Ask the Taxman column: https://www.dtnpf.com/….
To watch the full webinar, go to https://www.youtube.com/….
USDA will post the slides for the webinar at www.farmers.gov.
Chris Clayton can be reached at [email protected]
Follow him on Twitter @ChrisClaytonDTN
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